German Chancellor Angela Merkel, March 14, 2009:
If we want to actually strengthen the effect of such [stimulus] packages you simply have to implement them and not talk about the next one before the first has actually taken effect.
Bloomberg, March 26, 2009:
Chancellor Angela Merkel is injecting 82 billion euros ($110 billion) into the economy, the biggest stimulus package in Europe. . . . Germany’s spending spree came after Merkel exasperated European Union leaders, who wanted her to endorse a collective 200 billion-euro rescue package for the 27-nation trade bloc last November. . . . [The] package amounts to about 1.5 percent of GDP in 2009.
And there goes the last tiny shred of consistency in Europe. The story that has dominated the run-up to the G-20 summit has been about the split between the U.S. and Britain, united behind the supposed need for more stimulus bills, and the Europeans, who wanted global economic governance instead.
That narrative has now been blown apart. Two days ago, the Governor of the Bank of England warned Britain that it needed to be cautious about going any deeper into debt. Gordon Brown’s government rushed to deny the plain meaning of his words, but the implication was clear: the pro-stimulus front was cracking. Now Germany has broken away from France, which continues to insist on the dangers of stimulus spending. A German spokesman Friday claimed that there are “no points of contention here between us and the US government.”
The outlines of the G-20 agreement are becoming clearer by the day, and they are as we forecast two weeks ago: the Europeans will give a modest endorsement of stimulus spending, and in return, the Obama administration will move a long way towards the European position on global governance. Treasury Secretary Geithner said in London Friday that the U.S. now supports “a global framework, a global infrastructure which has appropriate global oversight.” He added that the financial sector needs to be tightly regulated so that it can never again threaten the collapse of the wider economy.
This is just about the worst agreement that the summit could possibly have produced. It’s the worst of both worlds: more so-called stimulus spending for everyone, a globalization of Europe’s slow-growth economic model, and a subversion of U.S. sovereignty by a new global super-regulator. This is folly. And the reason why, ironically, was explained by the European Commission, which sits at the center of the European Union. In November, it rejected a Europe-wide stimulus package with these words:
the Commission insisted that ‘a one-size-fits-all approach […] could not work given member states’ different starting points
Coming from the EU, that is hilarious. The EU, in practice, is all about a one size fits all approach: one currency, one set of tariffs, one set of financial rules, and one legal code, to name only a few. Yet it rejected coordinated European action because it claimed that Europe is too diverse for it to be effective. And that was the right decision. So why should we now want to sign up for an agreement that takes the one size fits all approach of Europe and applies it to the entire world?
The EU says the one size model will not work. So let’s do as they say, not as they want to do.